Thursday, June 29, 2006

Dysfunction in Philippine shipping policy

IS the Maritime Industry Authority (Marina) a defender of public interest or a lobbyist for the shipping industry? Marina’s leaders had better figure that out because it appears it’s behaving more of the latter.

Late last week, Marina, a government agency tasked with regulating the Philippine domestic shipping industry, announced it will soon cut the number of vessels plying the same route “to stop cut-throat competition among shipping companies” and “reduce inefficiencies” that should supposedly lower cargo handling rates. “We have to limit business cost to the lowest possible figure so that we could maintain current rate levels if not reduce or prevent rate increases altogether,” said Vicente Suazo, Marina administrator.

That statement is interesting because if indeed Marina wants to raise efficiency in the industry and reduce shipping charges that are penalizing shippers of goods all over the country, that best way to ensure that is by introducing competition. Economics 101 says that only competition can force producers and suppliers of goods and services, shipping included, to make their operations more efficient and cheap. What Marina is trying to do, it seems here, is to encourage the formation of monopolies and oligopolies in the shipping industry—basically, just the forces that make the industries inefficient and uncompetitive, thus penalizing the growth of other sectors in the economy.

For so long, shippers in Mindanao have been complaining that they could not make much headway because of prohibitive freight charges. The common anecdote among the country’s poultry and livestock integrators seems to be, for instance, that it’s cheaper to import corn from Argentina than ship the same product from Mindanao—essentially because of the oligopolistic nature of the domestic interisland shipping industry.

It is the nature of these complaints that forced the government to deregulate the country’s shipping industry in the early 1990s. And indeed, analysts have noted a substantial improvement in the quality of service provided by shipping companies. Marina’s recent policy pronouncements therefore tends to reverse these gains, and bring us back to the days when most routes were operated only by one shipping firm, resulting in sloppy services and prohibitive freight charges. In fact, what Marina should do is continue the momentum of the reform process so the country could have a competitive shipping industry that provides efficient service to the rest of the economy.

Marina’s recent policy backsliding came following complaints by certain big shipping companies that “cut-throat competition” is hampering the growth of their businesses following the introduction of the roll-on/roll-off vessels. But the right response is not to remove competition but to examine the overall policy environment that has been hampering the operations of the market forces. And surely, there are still a lot of policies out there that need to reformed to ensure a more competitive and efficient industry.

For instance, the government still regulates the third-class passenger service and requires ships to devote 50 percent of passenger capacity to third class, thus making passenger ships uncompetitive vis-à-vis the cargo-only vessels. Another government policy that is stifling the shipping industry is the ceiling on return on incentives. Certainly, a ceiling on ROI deters companies from providing a better and more efficient service because the returns may not be commensurate to the level of service rendered. It’s also a disincentive to would-be investors. Of course, deregulation would allow shipping firms to raise their fare and freight charges, but at least they cannot do so indiscriminately if the industry is open to foreign competition and they would have to reckon with possibly more efficient players and lower rates. Yes, total deregulation that should include the lifting of the “cabotage law” is the key.

Monday, June 26, 2006

Abolition of death penalty amidst the slaughter of the innocents

PRESIDENT Arroyo’s signing of the law that abolished capital punishment has been billed by critics as simply a show to please some clerics living in Rome. That may be so, but at least she had the candor to credit Congress with rushing the law that gave her a fitting enough “gift” when she meets the Pope. Now, we join the ranks of countries enlightened enough to realize that the death penalty can never be a proper means for exacting justice—especially in countries like ours where the justice system is still ages away from reforms that ensure the guilty get caught, regardless of their station in life and influence; that they get punished; and that the victims get redress.

That said, while the repeal is something to celebrate about, the truth is that it won’t improve our daily lives just yet. The sense of fear that we feel as we walk the streets day or night, won’t fade away like the hot summer for as long as the country’s law enforcement and judicial system remains ineffective.

Still, on the surface, there seem to be at least three major reasons why we should be happy with the abolition of the death penalty.

First—it’s a worldwide trend. Data from Wikipedia suggest 88 countries, including the Philippines just recently, have abolished capital punishments for all offenses and 11 for all offenses except under special circumstances; 25 others have not used it for at least 10 years while about 72 countries retain it. In the developed world, the United States and Japan still have capital punishment but the Europeans have constantly been castigating them for that.

Second—death penalty has long been used by authoritarian governments worldwide both as an instrument to enforce social order and as well political repression. Sri Lanka recently ended its moratorium on the death penalty while China, Singapore and Iran are still using it regularly. In 2004, for instance, China performed 3,400 executions, accounting for 90 percent of the total. In terms of execution per capita, Singapore has the highest, about 70 hangings a year for a population of only about 4 million. The point here is that we should have forsworn this barbaric a practice long time ago.

Third, it’s just as well we abolished death penalty because our justice system and the law-enforcement agencies are weak and ineffective and it’s highly probable that a significant number of those people convicted of crimes punishable by death are poor and innocent. Many of them are probably victims of frame-up and corrupt lawyers or judges, or simply by harassed bureaucrats who let their cases fall through the huge cracks of the system—thus causing many detention prisoners to suffer for years in periods far exceeding the penalties for their alleged offense, assuming they were guilty.

Still, there’s a huge dark cloud hanging over the initial celebration for repeal of the death-penalty: the unabated killings—with impunity—that have victimized dozens of activists and political followers, journalists and lawyers and judges around the country.

In reality, the death penalty still operates in the land with the continuing deaths of the leftists, crusading journalists, and suspected rebels. And this is the worst kind of “death penalty” as the killers have become the judge, jury, and the executioners. In the court of law, suspects—even defended by the dumbest lawyers—would still have a chance to win acquittal. Under the current political environment, leftists and suspected rebels or rebel sympathizers, are dead men walking—deprived of the chance to argue against the triggerman whose “mission” is only to kill the “enemies of the state.” Add to that climate of impunity the long list of journalists and lawyers and judges who have been killed the past two years, notwithstanding the “shame campaign” to which we have been subjected to by various international human-rights groups and fact-finding teams. These foreign groups cannot reconcile our image as Southeast Asia’s only “real democracy” with the way we allow our activists, journalists and lawyers to be killed so brazenly—and their killers to get away so easily. Imagine, last year the Philippines was billed as the second most dangerous place in the world for journalists to practice in, next only to Iraq.

Meanwhile, to make matters worse, the government has lately warned that citizens who “coddle” rebels and subversives would also be legitimate targets for government troops who are out to run communist rebels to the ground. The reality in the rural areas is that people are often forced to give food and shelter to anybody, especially those who bear arms for fear of reprisals. That would make them targets by government troops who are just too eager to pull the trigger.

The government may have abolished the death penalty officially, but it seems the slaughter will continue for much longer.

Tuesday, June 20, 2006

Perks for those who don't need them

THAT we need investments, both foreign and local, is not the issue in the debate about fiscal incentives in the Philippines. We have been stressing that the Philippines needs everybody’s help, including those of foreign and local investors, to develop this country. Whether or not fiscal incentives are the best way to achieve them, however, is the real question. Our position has been consistent and clear enough—that there are better and effective ways to promote investments other than fiscal incentives. The Federation of Philippine Industries (FPI), for one, has made a good case of the more important tack of lowering the cost of doing business than, say, haphazardly giving income-tax holidays.

Admittedly a few fiscal incentives, well-thought-out and validated by experience, may do the trick, but these are rare. Moreover, there are ways to reform the system that do not disrupt the operations of those who are already doing business within the country’s borders and have enjoyed such perks.

How? Remember that fiscal perks, say tax holidays, are time-bound and constitute, in effect, a contract between the government and the investors. The government therefore will have to allow them to complete the full terms of those projects, providing safeguards against abuse while Congress is reforming the system that has been draining the country of substantial forgone revenue.

Our main problem with fiscal incentives is the ease with which they can be easily abused to the detriment of the public. The BOI, through its Investment Priorities Plan, has been granting incentives to certain industries, without a clear and strategic view of what it wants to achieve for the country. To attract investments? Certainly it has fallen below expectations here. To spread investments in the countryside? It has failed in this regard also because fiscal incentives are not likely to counteract serious barriers to investments like poor roads, peace and order problems, and other constraints borne out of the structural problems.

Do we need to promote export? To promote tourism? Or information technology? Definitely yes. But according to Prof. Renato Reside of the UP School of Economics, 95 percent of the overall value of BOI investment portfolio is not exporting. It’s not IT-related. Neither is it tourism-related.

These statistics mean that those who got the perks are mostly those who don’t need them or would have invested just the same because there is simply too much money to make with or without the perks. Reside says that companies investing could be classified into domestic market-seeking, resource- seeking and efficiency-seeking, and the first two are simply redundant ones that don’t need the perks. In a word, the good professor says that a regime of misplaced incentives” is largely to blame for deepening poverty in this country.

In a saner context, industries like telecommunications, mining and real property development don’t need the perks because they are just too profitable and redundant. Yet most of these projects got the perks for some reason that only the BOI and PEZA can explain. The result is that the government is not collecting the money that the country needs to finance development. Lacking the money after giving all the perks to rich, the government instead is squeezing the general public—nay, the fixed-income employees—as well as the consumers to fund the operations of the state through higher income and value added taxes. As one analyst put it, this seems to be the case of a government that gave the money to the rich and then squeezes the poor.

Who determined which industries needed these perks? They are unelected bureaucrats of the BOI, Peza and other government agencies—and the apparent irrationality in some of their decisions have inevitably led to suspicion in some quarters of collaboration with certain vested interests. The suspicions could have been quelled if the basis for their decisions were clear. Nobody seems to know such, however, because these institutions are never transparent.

If mining, real estate development, or telecommunications deserve the perks, why not the lowly sari-sari store at the corner street? Certainly, everybody else—including the magbobote and magtataho—also deserve the perks. But if everybody else deserves the perks, then we might as well abolish them so we could collect taxes from everybody; and so that government can have enough money to spend for the betterment of all, not just a few who are already so rich.

At some point we need to stop institutionalizing favoritism in the country’s economic policy. The way BOI and Peza are running things really looks like it’s rent-seeking plain and simple. In harsher terms, it may be wealth creation through bureaucratic corruption.

The Senate right now is reviewing the country’s fiscal incentives laws to “rationalize” them. We suggest that the Senate form a panel of independent experts to study extensively the country’s fiscal incentives system, including how the BOI and Peza have been implementing them. We suspect they are going to find tons of worms that are gnawing at the guts of the country’s economy.

Thursday, June 15, 2006

Abolish the fiscal perks!

THE controversy regarding the granting of fiscal perks by the Board of Investments (BOI) to Smart and Globe for their 3G projects simply confirms what economists have been saying all along: many of the incentives, even before the 3G controversy broke, had been found redundant; many of those industries would have set up shop in the country with or without them; and worse, the indiscriminate grant of perks probably provide just another avenue for graft and corruption. The Philippines has been suffering from a continuing fiscal crisis yet the government—in some misguided belief that all we need to do is dangle those perks to attract investors—refused to collect the taxes that could have gone to financing development.

The Senate right now is thinking about “rationalizing fiscal incentives” by doing its own review of the bills as approved by the House; it might as well look into the possibility of abolishing them and replacing the incentives with a low and uniform corporate income tax to remove bureaucratic participation in the private sector’s investment decisions.

For a long time, analyst after analyst has been telling policy makers that the grant of fiscal perks is not the answer to the lack of investments in the Philippines. Studies have been saying the determinants of investments generation are adequate infrastructure, stable and predictable macroeconomic policies, political stability; effective investments promotion, and good governance. And yet the government has been clinging on to them; legislating hundreds more laws granting perks to every Tom, Dick and Harry. Ask anyone from the government’s planning bodies how many laws and executive orders granting fiscal perks and chances are—and they don’t know. Yes, there are hundreds of them and not anyone in the government knows what firm got what fiscal perks from what law because the system has become so tangled, one could only suspect some people out there in the bureaucracy are making huge money from doling them out to the cronies, clients, and friends. And of course, from that confusing tangle, it’s so easy for some crooked bureaucrat to make money too. For decades, government has been granting them yet we really have nothing to show for it. How much investment do we attract each year? Just below a billion dollars. And our Asian neighbors? About four to five times as much. It’s really nothing but just another venue for “bureaucrat capitalism” or an institutionalized rent-seeking.

In simple terms: gatasan lang talaga ang estado! Why do we suspect this? Because of the total lack of transparency with which fiscal incentives are being administered. Try asking about the criteria by which BOI and its sister company administering those fiscal perks, the Philippine Economic Zone Authority (Peza), as well as several other government agencies, grant those perks; ask for the relevant documents and you wouldn’t get anything. Confidential information, they will say. Peza, for instance, won’t give you basic information like project costs and employment generation per project. They are supposedly public documents, yet these government agencies are guarding such information and documents like hungry dogs. Why? Because they contain truth that’s better not shared with the public?

The government has been trying to rationalize fiscal incentives in the last three decades. But every time policy makers did it, they always ended up messing the issue even more. Why? It’s because there has never been any honest-to-goodness or truly independent study of the policy and how they are being implemented by bureaucrats. In the last two to three decades, it’s clear that these perks never came close to achieving their objectives, yet policy makers and legislators seem to believe that all is well. Well, all is not well and it’s high time legislators look at those with critical lenses.

Here’s our recommendation: First, the Senate should commission an independent group of economists to analyze those perks. These technical people should examine the costs and benefits of having those perks and how government agencies are implementing them. With the tangle of laws from which anybody could claim fiscal perks, it’s highly probable some of those businesses are making business out of double-dipping. The study team should look at this angle as well. And while this is being done, the government should stop granting those perks until a better policy takes shape. At the same time, Congress should also require BOI, Peza, and other incentive-granting agencies to open all documents for public scrutiny to ensure transparency. Only then should the Senate continue deliberating on the fiscal incentives bill once the senators have all the right inputs.

Or better still, the Senate might as well just abolish the fiscal perks— including the BOI, if you ask some critics. In lieu of this body, an investment promotions agency could do the work. Lately, the Federation for Philippine Industries (FPI) has called for a lower corporate tax in lieu of the fiscal perks to lessen opportunities for rent-seeking and corruption among bureaucrats. That proposal makes sense. Those enjoying incentives right now could be given a transition period to adjust to a new policy regime (i.e., low corporate tax, no fiscal perks). They would even welcome it because under this new policy regime, companies could do business without having to see the faces of bureaucrats to make their investments going. Hong Kong and Ireland, which are less corrupt, have done this and they are now attracting more investments than the Philippines.

Indeed, abolishing the incentives system as currently constituted is necessary to give some sense of social justice in this country. Otherwise we will remain the only place on earth where the middle class, or the aspiring middle class, are squeezed through taxes while the rich wallow in fiscal “perks.” No wonder the middle class would rather leave for foreign shores.

Wednesday, June 14, 2006

Government should get real on car pooling

WILL the country’s transport managers please get serious with car or van pooling? It’s the best way to help reduce the stress of rush-hour commuting that perennially plagues private and public sector workers.

Consider this scene every morning in Bacoor, Cavite: between 7-9 am, commuters are standing by the road hoping to get an AUV or FX taxi that could bring them either to Lawton in Manila, Baclaran or Makati. (This route is not served by public transit like the bus because traffic volume is high only during rush hours and therefore not a economically viable route for a bus franchise.) Once the FX arrives, commuters swarm around the vehicle like locusts, jostling and snarling at each other in order to get a seat. Those who are not quick enough continue waiting for the next FX, hoping they could have a seat next time. Those who are in a hurry are forced to hail a taxi and spend hundreds of pesos of their hard-earned minimum wage. Those who can’t afford the taxi take several jeepney rides to the next transport breaks, hoping to get another public utility vehicle to their destinations. These people end up taking three or four rides to get to their office, arriving to their offices late, their wallets drained, disheveled, tired, with low morale, and smelling like stevedores at the North Harbor.

This scene is repeated in other bedroom communities all around Metro Manila each day. Yet the government’s transport planners and local government units behave as if these things never happen. Worse, they seem to believe that this harsh commuting life for workers, mostly lower-middle-class cubbyhole dwellers, is just another fact of Philippine life that the unlucky ones have to put up with each day. It’s time the government, particularly the Department of Transportation and Communications, looks at this problem carefully.

The last decade saw the proliferation of “bedroom communities” at the fringes of Metro Manila as well as the towns bordering the National Capital Region (e.g. Antipolo in Rizal and Bacoor, Dasmarinas, and Imus in Cavite; and San Pedro, Binan, and Calamba in Laguna; and several towns in Bulacan). They are called bedroom communities because they cater to the housing needs of employees from the private and public sectors working at the NCR. They are literary called bedrooms because each day, hundreds of thousands of employees shuttle home at night for rest and sleep and return the next day to their work in Metro Manila’s central business districts.

Imagine commuting for four hours each day from home to work? Yes, that’s the average time many of them spend each day—two hours in the morning from home to office and two hours back home—because of traffic congestion, inefficiency of the transport system, bad roads, and poor traffic management. It’s a horrible and backbreaking labor, especially for those who don’t have aircon private vehicles—not to mention the health hazard, as proven by abundant anecdotal evidence of commuters getting kidney-related ailments from having to control their bladders for hours on end. And they comprise the vast majority of these harassed commuters.

In Europe and America, commuters are largely middle-class professionals who have nice cars and SUVs. They are in the suburbs because they have the money to afford the best of both worlds: a nice, high-paying job at the city center and a nice sprawling house at the suburb where they could have barbecue and party by the pool on a weekend.

In the Philippines’ megacities, particularly in the NCR, home-office commuters are largely poor minimum wage earners who have no other choice except to get a crowded box of a GSIS-financed house in some backwaters of Cavite and Laguna. The rich ones here also have the best of both worlds: huge houses and condominums in posh enclaves of Bel-Air, Valleverde, Loyola, and San Miguel so they don’t have to share the crowded highways with the riffraffs on weekdays, while maintaining palatial homes in Tagaytay where they hie off to escape the pressure of urban life during weekends and holidays. The point here is that this oppressive commuting is largely victimizing the poor and the powerless, something that the government should address immediately as a matter of social justice.

Necessarily, the woes of commuting are transport congestion problems that are better solved through a combination of measures like traffic demand and supply management (e.g., “number-coding,” maximization of vehicular flow through land use restrictions, improving road networks, among others). But there are practical, doable things that the government can do that does not require public expenditure. One of them is the institutionalization of car or van pools within mega-Manila, comprising the NCR and adjacent provinces like Bulacan, Rizal, Laguna, and Cavite. It’s a commonsensical thing that blends well with the Filipino culture of pakikisama and bayanihan. Sad to say, DOTC continues to ignore this practical measure. In fact, the government discourages this practice. Regularly, the traffic cops arrest and penalize those who take their neighbors in their vans to their destinations for being “colorums” or without franchise.

The solution to this, of course, is giving more franchises to more FX and AUVs, but the DOTC has been deliberately limiting the number of franchises supposedly to prevent traffic congestion. In reality, the DOTC wouldn’t really know the optimal number of franchises for lack of data and planning. Yet this discriminatory policy has been victimizing hundreds of thousands of commuters each day. If DOTC indeed can’t grant more franchises, therefore, it had better institutionalize van or car pooling to address this perennial problem of transport shortages during rush hours in bedroom communities. It’s only a matter of changing its mindset— from that of a cop eager to command and control the transport system to a service- and people-oriented institution that is willing to serve people’s real needs. Once this change in mindset is achieved, the implementation aspects are minor details that could be solved through common sense and experimentation.

Wednesday, June 07, 2006

Pinay diaspora

Mao Zedong once said that women hold up half the sky. In the Philippines, they may actually hold up more, probably seven-tenths. That’s if we consider overseas employment that pumps in more than $12 billion into the local economy and keeps the Philippine economy afloat.

Everybody is probably familiar with the usual refrain about OFW remittances. We know for instance that personal consumption expenditure (PCE) accounts for more than 70 percent of the country’s gross domestic product (GDP). Any movement in PCE therefore could either push down or boost the economy. In the last several years, the country’s GDP has been growing within the range of 5-6 percent, courtesy of buoyant PCE.

In practical terms, robust PCE means people are buying food, beverage, appliances, cellular phones, vehicles, and services thus giving life to factories, offices, restaurants, and shopping malls. It also means people are sending their children to school. You might think our “industrialists” and “tycoons” are providing wealth to the nation by having these factories, telecommunications facilities, and shopping malls. False. It’s the other way around. These tycoons are rich because billions of dollars are coming in from abroad. Those tycoons are simply raking it in. That’s precisely why we call OFWs “modern day heroes.” Had it not for their remittances, this country could have succumbed to a communist revolution more than a decade ago.

Who are these modern day heroes? Media portrays them as bronzed, muscle men with glittering gold necklaces coming home in blue jeans and jackets. Wrong again. Statistics says that they are women. Since the Year 2000, about more than 70 percent of the newly-deployed OFWs are women, mostly professional and technical workers, clerks, and service workers.

They are mostly nurses; composers, musicians, and related workers; teachers; choreographers and dancers; x-ray technicians; occupational therapists; dental workers; caregivers; cleaners; and beauticians. What these figures mean is that Filipinos are actually sending their mothers, wives, daughters, and sisters to slave out abroad so their husbands, fathers, and brothers would have something to eat, buy their cigarettes with, and send the children to school. So there’s one thing that prevents this country from tearing apart from political bickering, it’s the money sent by our moms, sisters, and daughters.

But there is a bad flipside to this. When you send away a mother, the country suffers, not just from brain drain, but from care drain. No doubt Filipinos are good fathers, some of them anyway, but a household could never be complete without mom’s presence. Right now, estimates show that about ten percent of the country’s population or 24 percent of the country’s labor force are abroad. If you consider the trend that seven of ten newly deployed workers are women, one could sense that millions of children out there are growing up without warmth and guidance of a mother.

What are the social consequences of this trend is open to speculation. But it’s hard not conjure negative images about juvenile delinquency, broken homes, dependency, and criminality. Families of OFW therefore are sacrificing a lot so that this country survives the chronic deficit in political leadership. Of course, the country is sacrificing a lot as well as since we are losing lots of talented people to other countries, at least temporarily. Given the training and experience they would get abroad, their diaspora would ultimately be brain gain. But we need their brains now; we can’t even fill jobs for call centers and back office processing here.

And it seems more families are going to have these sacrifices. In the last decade, statistics says that almost 300,000 newly-hires are leaving for various destinations abroad to earn the dollars. Lately, the US has opened its doors to Philippine nurses but opportunities for medical professionals right now are practically limitless as demand from countries like Japan, United Kingdom, Spain, and most of Europe for nurses and caregivers is rising.

What we would like to stress here is that society owes them a lot. And what better way to repay them than having a community-based support networks for these families if only the children left behind wouldn’t go astray? Ideally, OFWs should bring them their families abroad. But since this option is not always available, the continuing diaspora of mothers, wives, daughters, and sisters might have high social consequences. Necessarily, economic factors are the main driving force behind this feminine diaspora and only when the country’s economy is now capable of responding to families dreams for a decent life would this phenomenon decelerate to an imperceptible degree. But there are short term measures that government and the private sector could do. Philippine embassies for instance should ensure welfare of OFWs and help them fight for their rights. The government could also negotiate for a continuing training programs for hired OFWs so that when they come home, they will bring with them additional skills. At the local front, our tycoons could do a lot, for instance, by investing in our school system and training institutions to ensure the continuing supply of skilled workers and professionals. Yes, they could help the economy more by helping the country strengthen its human resources than selling them house and lots, cellular phones, and raking their money in through those super-sized shopping malls.